Pack 1: Nature of Economics Flashcards
What is the definition of scarcity?
Supply of resources limited, cannot fulfil unlimited human wants
What is opportunity cost?
The value of the next best alternative forgone
What is ceteris paribus?
‘other things being equal’, focuses on change in one variable, others kept constant.
what is a positive statement?
Objective explanation, can be tested or rejected using evidence
What is a normative statement?
value judgement expressed about what out to be, subjective not objective
What does the PPF show?
Maximum combination of goods and services which can be produced in a given time, all available resources being used efficiently
What is specialisation?
Process by which individuals, firms and economies concentrate on producing goods and services where they have an advantage.
What are the four functions of money?
+Medium of exchange
+Measure of value
+Store of value
+Method of deferred payment
What is division of labour, who’s idea was it?
Production process broken down into sequence of stages, workers assigned to a specific stage - Adam Smith
Benefits of division of labour/ specialisation?
+Higher output, productivity and economic growth
+Lower cost per unit
+Better product quality
what are the problems of division of labour?
+Monotony - down productivity, up staff turnover
+structural unemployment
What are the disadvantages of the free market?
+Inequality
+Market failure:
-Dominant firms exploiting consumers
-under/over provision of goods
what are the problems with specialisation?
+greater interdependence
+over-specialising, risk not diversified
What is a command economy?
Scarce resources allocated entirely by government
What were Adam Smith’s views on economies?
+Supported free markets
+‘Invisible hand of the market’, (price mechanism)
+competition essential
+state important role in certain areas
